Ohio Gov. John Kasich's office projects hundreds of millions in losses because of a change U.S. Senate Republicans want in the way states tax healthcare providers. The change was put in the proposed bill to dramatically alter Obamacare.

Ohio Gov. John Kasich's office projects hundreds of millions in losses because of a change U.S. Senate Republicans want in the way states tax healthcare providers. The change was put in the proposed bill to dramatically alter Obamacare.(Pablo Martinez Monsivais, Associated Press)

WASHINGTON -- Senate Republicans say through their healthcare bill that they want states to take more responsibility for Medicaid, and their bill says it will give them that flexibility.

Yet the bill to dramatically alter Obamacare may actually tie the hands of Ohio in a little-noticed way, costing the state hundreds of millions a year.

The problems start with the way the federal government would pay for Medicaid, the joint federal-state health insurance program for low-income Americans. The Senate's base proposal would cut money states expected, and that already was expected to cost Ohio billions of dollars.

But that's just the beginning. Then the bill would removed hundreds of millions in state revenue by restricting one of the very ways Ohio and other states already pay for their portion of the Medicaid programs -- through taxes on the healthcare industry, known as "provider taxes." Every state except Alaska uses provider taxes.

Senate Republicans, while saying they want to give states more flexibility in running Medicaid, want to limit states' ability to charge provider taxes.

Ohio charges or plans to soon charge a 6 percent tax on Medicaid managed-care organizations, or insurers who handle Medicaid patients; on nursing homes, and on intermediate care facilities, according to the Ohio Department of Medicaid. It also has a much lower tax on hospitals, said John Corlett, president and executive director of the Center for Community Solutions, a think tank, and a former Ohio Medicaid director.

The Senate Republican bill would force three of those taxes -- on managed care, nursing home and intermediate care centers -- to come down. The bill would impose caps starting at 5.8 percent in 2021 and stopping at 5 percent in 2025.

By 2025, this would mean Ohio would collect $216.7 million less than projected under current Medicaid provider tax rates, according to estimates from Ohio Gov. John Kasich's office. Some of that money could be recouped through a complicated set of federal rules involving reimbursements, but even then the annual net loss to the state by 2025 would come to $173.7 million, according to state estimates.

Kasich, a Republican who champions Medicaid, isn't the only official who worries about this. The short provision in the bill could raise bipartisan objections, and passage is already in question for other reasons.

"This bill hits Ohio with a one-two punch -- first taking away the resources Ohio depends on to care for children and fight opioid addiction and then making it impossible for the state to make up the difference," said U.S. Sen. Sherrod Brown, an Ohio Democrat.

Ohio already faces challenges without these cuts to its overall budget, including Medicaid. The state legislature is working on a budget for next year that avoids a $1 billion shortfall by cutting spending, but the state still might need to come up with extra money for Medicaid by the end of the year.

If dedicated sources are inadequate, the state will have to tap into its general revenue funds from other taxpayers, cut more spending or do both.

Here's why the plans in Congress could make these issues harder to solve in future years.

Medicaid in a nutshell

Before Obamacare, states let people with incomes up to the poverty level enroll in Medicaid and got the federal government to pay them back for a large share. In Ohio, that share is slightly above 62 percent. So if a low-income Ohioan needed medical care, his doctors and hospitals might bill $1,000, but Ohio could get about $620 of that back from Washington.

Obamacare let states expand Medicaid to families making up to 138 percent of the federal poverty level, or $33,600 a year for a family of four. And the federal government paid the full cost at first, although the federal share phases down to 90 percent in 2020 and beyond.

Put aside the Republican Senate and House plans to end the expansion, whether through a gradual or somewhat faster phase-down. That has its own financial and healthcare implications, but for simplicity's sake, let's just stick with traditional Medicaid.

The program would continue. But it would get less money.

How much less

A key point: Right now, Medicaid pays as much as it has to. That is, the program sets limits on how much it will pay for each doctor's visit and procedure, but if a patient needs ten procedures, Medicaid pays the ten fees. It doesn't ever say "Sorry, we're out of money, go home."

House and Senate Republicans would apply the brakes to that spending. Each chamber has a different idea of how to do this, with each using a different measure of inflation to set restrictions. The Senate's measure is less generous, but generosity is the wrong term, since analysts say neither measure of inflation would keep up with medical costs.

States would have little choice but to cut Medicaid services, shift more costs to patients, raises taxes or fees on residents, find money to transfer from other state programs or do all of the above. The Congressional Budget office predicted the House bill would reduce Medicaid spending by $839 billion between 2017 and 2026. A CBO analysis of the Senate's bill should be out within days.

Who are these people getting Medicaid, anyway?

In 2014, 40 percent of Medicaid expenditures went for care for the disabled, 21 percent for the elderly and 19 percent for children, according to the Kaiser Family Foundation. That meant only 19 percent of Medicaid spending was for other adults.

Kaiser Family Foundation

But there's more

Senate Republican leaders say they want states to pay more of their own money, but they also want to restrict the states' methods. That means putting new caps on Medicaid provider taxes.

This is not simply a matter of Congress being mean. Fiscal conservatives have had a problem with these state taxes for a long time. To understand, you have to go back to the concept of the federal Medicaid reimbursements. Now consider how they work with nursing homes.

Ohio pays nursing homes to care for Medicaid patients. But the state gets about 62 percent of that money back from Washington. That means for every $1 Ohio pays, its actual costs after federal reimbursements, not counting administrative costs, is about 38 cents. The more it spends, the more it gets back and can put into Medicaid.

Still, it has to come up with its 38 cents. It does so in a lot of ways, including the provider tax. The tax comes to $16.44 a day per bed for nursing homes. The real cost to nursing homes and other providers is somewhat less because they can bill the state's Medicaid office for their costs, and taxes are considered a cost. And of course the state then can get its 62 percent reimbursement back from Washington for paying the tax, too.

See how circular it is? This helps the state come up with Medicaid money, and it helps nursing homes and care centers serve patients. But critics have said for years that this system incentivized states to set up these circular structures -- at Washington's expense. Congress and the Centers for Medicare and Medicaid Services already clamped down on the way transit agencies and counties were piggybacking on the provider taxes with their own taxes.

And Congress earlier said that if states reimburse providers for the taxes, or hold them "harmless," the tax cannot exceed 6 percent.

Now Senate Republicans want to bring that down to 5 percent, and are using the bill they said would repeal and replace Obamacare to do so.

The problem

That might make sense for Washington. But for states, it will mean having to search for Medicaid dollars elsewhere -- at a time when Washington will cut other financial commitments for the program.

By itself, the loss of about $217 million would pose problems but not be devastating because its total Medicaid budget will be almost $30 billion in 2019, the year for which the most detailed projections exists when counting all sources of revenue, including federal and state funds.

"No, I don't think it would be crippling, said Pete Van Runkle, executive director of the Ohio Health Care Association, which represents nursing homes. "I think it would be a challenge because the state would have to backfill from general revenue, and that's always under challenge."

But combine that with the Senate's other proposal to cut federal Medicaid spending and the problems mount, said Van Runkle and others.

The Senate could vote by the end of next week, but it's too soon to know whether it has enough support and whether the House will agree to the Senate version.